Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Downside Risk Mitigated By Fed, Economy, and Technicals

Stock-Markets / Stock Markets 2010 Oct 07, 2010 - 08:56 AM GMT

By: Chris_Ciovacco

Stock-Markets

Best Financial Markets Analysis ArticleFrom current levels, the downside risk in stocks, and risk assets in general, is probably not as significant as many believe. Three factors mitigate the risks relative to a gut-wrenching correction in risk assets: (1) the Fed, (2) the economy, and (3) a significant band of support in the S&P 500.


Since global balance sheets from the consumer to the U.S. government remain impaired, one of the objectives of the Fed’s policies is to create conditions which can stabilize, and possibly inflate asset prices (houses, stocks, commercial real estate). As markets drop and prices fall, the asset side of the balance sheet is impaired even further. Therefore, the odds of significant intervention from the Fed increase as markets and asset prices fall. We believe Fed intervention would be radical and significant if the S&P 500 dropped below 943.

While there is no question the current recovery is weak, the odds of a GDP double-dip remain relatively low. Bob Doll, chief equity strategist for fundamental equities at BlackRock puts the odds of double-dip between 10-20%. In its latest global outlook, Barclays Capital said there is little chance for a double-dip recession and the recent economic slowdown is typical four-to-six quarters into a recovery. Pimco’s El Erian sees a 25% chance the US slips into a double dip recession. Morgan Stanley sees the odds being below 25%. Warren Buffet has also expressed his views on the lows odds of a double-dip recession. From TheStreet:

Warren Buffett, CEO of Berkshire Hathaway and head public relations executive for the U.S. economy, found himself in the headlines again last week when he proclaimed that there won’t be any double dip recession. Buffett was unequivocal in his words, saying that it was “night and day” for the U.S economy now versus a year or year and a half ago. What’s more, Buffett didn’t just say he didn’t think a double dip recession is coming; he said it isn’t coming, end of story. There was no mincing of words or hedging of bets from the Oracle of Omaha. (Full Story).

The third mitigating factor to downside risk relates to the S&P 500’s recent move above 1,131. While the chart below is busy, the concepts presented are simple. Given the relatively low odds of a double-dip, and the “Bernanke put”, we believe buyers would become interested should the S&P 500 revisit 1,095 to 1,120.

The CCM Bull Market Sustainability Index (BMSI) is based on an overall technical composite of the U.S. stock market. The market’s current profile has produced attractive risk-reward profiles in the past, especially over the two-month to twelve-month time horizon (see green area in upper-right portion of the table below).

The CCM 80-20 Correction Index is based on studies of significant market corrections. The current daily 80-20 value of 567 tells us roughly 80% of significant corrections began from more extended market conditions, or 80-20 Index values higher than 567.

The Fed’s strong hints at another round of quantitative easing are a significant factor in many markets, including copper, silver, gold, and oil. You may or may not agree with the Fed’s approach, but the reality of the situation is more QE is probably on the way. Our task is understand the Fed’s possible impact on asset prices.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in